The costs of financialization: Lac-Mégantic

1069261_617677788257427_1973673423_nOver 50 people are reported dead and scores more injured after the catastrophic rail disaster in the small Quebec town of Lac-Mégantic.

Like clockwork, and almost as if press releases and op-eds were already prepared, proponents of TransCanada’s Keystone XL pipeline were quick to take advantage of the disaster to justify why Canadians need to invest in pipelines, rather than rail, to transport the country’s oil to market. As Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute and former chief economist at the U.S. Department of Labor wrote in a column published in The Globe and Mail, “Pipelines are the safest way of transporting oil and natural gas, and we need more of them, without delay”. Of course, TransCanada’s CEO, Russ Girling, has been cautious with his words, insisting that with the accident there’s “no good news here for anybody”. Still, much of the mainstream press insists that the train explosion, caused when a runaway train owned by Montreal Maine & Atlantic Railway (MM&A) derailed, has fuelled [sic] the debate of rail versus pipeline. However, it was a foreign publication, The Guardian, that really took to task the pivotal issue at hand: identifying the disaster not just as tragedy, but as corporate crime. As the author, Martin Lukacs points out, “The Liberal government completed the job by turning over what regulation remained to rail companies themselves. A report issued in 2007 by a safety group spelled out the result: Canada’s rail system was a disaster in the waiting.” But another issue that needs further investigation is what effect the financialization of rail and transportation has had on the industry’s safety record.

When covered the strike by the Teamsters Rail Conference of Canada at Canadian Pacific Rail in May, 2012, workers we spoke to on the picket line were quick to point out how the culture of CPR had changed over the past decade. Remember, labour relations at the company were going downhill just as a battle was being waged by CPR’s controlling shareholder and hedge fund, Pershing Square Capital Management, headed by William Ackman. To put it simple, Ackman wanted to increase CPR’s profitability by unseating then-CEO and President, Fred Green, who had been a 34-year employee of the company. At the time negotiations hinged on forcing pension concessions from workers and the union. As we wrote at the time:

“What these events suggest is that CP’s governance and corporate strategy are being determined the interests of financial capital, namely the hedge funds and pension funds that possess a dominant share in the company. The slate of directors nominated by Pershing represent an effort to accelerate financial returns on investments by slashing operating costs rather than through a process of industrial expansion.”

To this end it’s important to raise the same questions about the Montreal Maine & Atlantic Railway, and how the company’s history of financialization connects to the disaster in Lac-Mégantic. James Goodrich, a former rail engineer who once worked for MM&A, addressed the question of safety, deregulation, and cost cutting throughout the industry in an article published in The Montreal Gazette on July 12. The piece is worth noting here in full.

Some 25 people are dead and other 25 missing as a result of what happened last Saturday in Lac-Mégantic — and investigators and media are looking for answers as to what caused this accident. Among other things, they are looking into railway-industry operating practices.

I used to work for one of Montreal Maine & Atlantic Railway’s predecessor companies, Iron Road Railways, as well as two other railroads in Colorado and New England. I have been a freight conductor, yardmaster and locomotive engineer — and I need to speak out.

In my view, what happened in Lac-Mégantic is linked to the continent-wide, 30-year erosion of rules, procedures, equipment and infrastructure in the rail industry, and a culture of corporate acquisition by non-railroad interests that has led to deferred maintenance and deep cost cutting.

The first fact to consider is that this train in Lac-Mégantic had 72 cars of oil on it — and a single crew member. That equals 46,285 barrels of oil in cars that carry approximately 102,000 litres each. By contrast, the tanker trailer you see on the highway is carrying about 34,000 litres or 214 barrels of product. Thirty years ago, most trains had five-man crews — three on the head of the train and two on the rear in the caboose. Now there are mostly two man crews on the head end, with few exceptions, one of those apparently being the MMA.

There are many hazardous materials that cannot move on the highway and thus move by rail. This train was by definition a “Hazmat” train, and yet I notice that media reports that I have seen in the U.S. have reported that there were 5- and 10-mile-per-hour track-speed limits on the rails in the area where the train was parked. Five miles per hour (or 8 kilometres per hour) is an extremely slow order speed for rail, even in areas between Nantes and Lac-Mégantic where there are major differences in elevation above sea level. Even in the Rocky Mountains, rail beds are carefully designed so that track speeds are rarely less than 15 mph. The only other reason I can think of for a speed this slow would be known problems with rail track in the Lac-Mégantic area. I have only seen order speeds of 5 mph twice — after flash floods in Colorado, and in nearly abandoned Boston yards where no rail maintenance was being done at all.

This is not just an issue for rural Canada. On the Springfield Terminal Railroad (now Pan Am), I used to pull cars of hydrocyanic acid and chlorine through the suburbs of Boston. Policy-makers should take a close look at the emergency-response guidelines for the evacuation radius of those materials. Imagine the implications for accidents in major cities.

I was a proud member of the Brotherhood of Locomotive Engineers and I followed the rules, sometimes at great personal cost. I worked for and left three railroads because the personal costs were too high, and yet I have not been this upset since I went to the funerals of two co-workers killed in a derailment on Tennessee Pass in 1996. The railroad unions have been gutted in the past three decades, but if they cannot find their voice now, after the terrible accident in Lac-Mégantic, then they deserve irrelevance.

We all need to speak out for the sake of the people who move our planes, trains and trucks with inadequate support and respect for their health and welfare. We need to speak out for the safety of those who live close to our transport infrastructures and to renew our critical railway infrastructure to make up for deferred maintenance and decay. We also shouldn’t let Lac-Mégantic be turned into a sales pitch for pipelines. Pipelines do not carry hydrocyanic acid and chlorine and other hazardous materials, and they will not save you in the middle of the night. The men and women I worked with will.

Consider that MM&A has been involved in 129 accidents, including 77 derailments since 2003, according to The Financial Post. It is also one of two rail companies in the country permitted to operate trains staffed by a single engineer. In the United States, Rail World, which owns the Canadian subsidiary, MM&A, has an accident rate that is twice the national average, at 36.1 per million miles travelled, compared to 14.6 per million last year. Other reports indicate that the company’s accident rate for 1996 was “72-per-cent greater than all other railroads in its categories”. As the same FP article concludes, “Clearly regulations aren’t enough, especially if they aren’t enforced vigilantly.” Workers, unions, and the general public should also ask if the Lac-Mégantic tragedy is a symptom of hedge funds, shareholders, and financial capital determining standards based on profitability and return on investments rather than safety and industrial development. draws the readers attention to Railroad Workers United for more information.

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